ALEXANDRIA, Va. (8/14/13)--Budgeting is a key-risk mitigation tool and serves as a manifestation of a credit union's chosen direction, National Credit Union Administration Economic Development Specialist Vanessa Lowe and Katia Marini-Nunez, director of St. Francis FCU, Greenville, S.C., said during a Tuesday webinar.
One way credit unions can mitigate risk is by using their budget as a monitoring tool, the speakers said. Credit unions can also use their budget as a strategic planning tool, and to monitor the relative success of different financial products.
When developing a budget, credit unions must understand their historic results and have a plan for the future. During the budget planning process, they should focus on the largest income and expense lines first. The presenters said credit unions should consider what their expenses and income have been, what is changing, and how expenses can be reduced and income can be increased.
Estimating future line items on a budget is key, and can be difficult, the presenters noted. As a budget is determined, credit union officials should have a formula for making good estimates. NCUA 5300 call report data can also be helpful for budgeting purposes, Lowe said.
Detailed descriptions are not needed for every item on the budget, they emphasized. Focus on the most important items, and try and provide the most clear information as possible detailing why you included those items in your budget, Lowe suggested to participating credit unions.
Allowance calculation is another critical task, and Lowe noted that some credit unions have moved into prompt corrective action territory during their examinations because they were not updating their allowance calculator, and were thus underreporting their allowance factor.
The webinar presenters also provided examples of loan planning and allowance calculation models. An advanced budget template was also worked through during the webinar.
The majority of credit unions that took part in the webinar said they hold between $10 million and $50 million in assets.
Other scheduled NCUA Office of Small Credit Union Initiatives webinars include:
For more on Tuesday's webinar, use the resource link.